Lead Stories

Derivatives markets rebound in 2013
Jonathan Watkins – Future and Options Intelligence
The derivatives market has seen an upturn across the board this year and participants can expect even better fortunes in 2014, according to a panel at FOW’s Derivatives World London: The Debates.

Schwab: High-Frequency Trading Should be Shut Down or Outlawed
Tiernan Ray – Barron’s
Chuck Schwab was on CNBC’s Closing Bell with Kelly Evans and Scott Wapner a short while ago, roaming over a number of topics.
Evans brought up an op-ed piece by Schwab from this summer in which he accused high-frequency trading of eroding investor trust and willingness to enter markets. Schwab reprised his critique, arguing high-freqency trades “game the system” and are violating the fundamental principles of securities markets.
**Fundamental principles such as Schwab isn’t getting a piece of that action? -JB

A Random Walk with the VIX and the SPY
Adam Warner – Schaeffer’s Investment Research
Ah, momentum. It’s a topic of debate in both sports and finance. Sportscasters are fond of the concept, crediting momentum over and over again any time a team strings two good plays together. The stats community is rather dubious of the concept. It confuses coincidence and the random nature of tiny sample sizes for cause and effect.

Volcker Says He Didn’t Help Write Rule Bearing His Name
Yalman Onaran – Bloomberg
Paul Volcker said he wasn’t involved with writing the final version of the rule that bears his name, staying abreast of developments from a distance as regulators crafted details of his curbs on trading by banks.
**Don’t look at me. -JB

Videocast: Traders buy VIX puts

VSTOXX Meets Fear and Regret
Howard Simons – Minyanville
 I concluded on Friday, “As investors’ state of psychological loss is related to the time-adjusted retracement of gain, a different measure of psychological anchoring will be required for the VSTOXX.” That was not simply idle prattle, although I am hardly allergic to such, but rather a reference to previous analyses done for the VIX (INDEXCBOE:VIX).

A Real Selloff, For Once: The ‘Taper’ Still Isn’t ‘Priced In’
Brendan Conway – Barron’s
“The taper is priced into the market.” It’s been voiced one way or another by Jack Bogle, Goldman Sachs and sundry money managers. Up next, the Pope.
Is it just plain wrong?

Dan Collins returns to Futures as Editor-in-Chief
Dan Collins – Dan Collins Report
I would like to announce that I am returning to Futures Magazine as Editor-in-Chief. I need to thank all my loyal readers that have helped to make the DanCollinsReport.com a success. It is truly humbling to see how many people have come to the blog, offered suggestions and incite or shared relevant material with us.
**Dan Collins scoops himself!  Congrats Dan! -JB


OCC Announces Richard Wallace as New Chief Compliance Officer
Press Release (OCC)
OCC announced today that Richard Wallace has joined OCC as Senior Vice President and Chief Compliance Officer.
Mr. Wallace comes to OCC from Foley & Lardner LLP in Washington, DC where he was a partner. His practice concentrations there included representing securities broker-dealers, hedge funds, mutual funds, and investment advisers and their employees in SEC and FINRA investigations and disciplinary proceedings. Previously, Mr. Wallace served as Vice President and Chief Counsel in FINRA’s Market Regulation Department. Additionally, he has served as a Branch Chief and Attorney with the SEC’s Division of Enforcement. Mr. Wallace holds a degree in Political Science and a Juris Doctorate degree from University of California, Berkeley.

CBOE Declares Special Dividend, Adds $100 Million to Buyback Plan
John Kell – The Wall Street Journal
CBOE Holdings Inc. (CBOE) said it will pay a special cash dividend that will cost nearly $44 million, while the U.S. options exchange operator also boosted its stock buyback authorization by an additional $100 million.
The parent of the Chicago Board Options Exchange declared a 50-cent special cash dividend to be paid to stockholders next month. The company had about 87.2 million shares outstanding as of the end of October.

Sharpe Innovation Awards to ETF and Index That Use VIX Futures
Matt Moran – CBOE
On December 9th the annual William F. Sharpe Indexing Achievement Awards were presented at the 18th Annual IMN Global Indexing and ETF’s Conference in Scottsdale, Arizona.

MIAX Options Exchange Celebrates First Anniversary and Hits Milestones
Press Release (MIAX)
MIAX Options Exchange (MIAX) celebrated its one year anniversary on December 7th and announced that it achieved an uptime of 100% in its first year of operation. MIAX also celebrated another milestone as a record number of contracts traded on MIAX on December 6, 2013 – in excess of 500,000 contracts – representing 3.36% of equity options volume.
http://jlne.ws/1fkRoLr (PDF)

Regulation and Enforcement

Your Guide to the Volcker Rule
JLN Staff – John Lothian News
After a three year wait (over a year beyond the deadline mandated by the Dodd-Frank Act), a consortium of U.S. regulators released the final Volcker Rule.  Under the rule, banks will be prohibited from engaging in proprietary trading and from owning more than a three percent stake in hedge funds and other private funds.

Wall Street Exhales as Volcker Rule Seen Sparing Market-Making
Michael J. Moore, Dakin Campbell and Laura Marcinek – Bloomberg
Wall Street banks avoided their worst fears of the Volcker rule after regulators crafted the ban on speculative trading to leave market-making operations intact.
Goldman Sachs Group Inc., which among big U.S. banks gets the largest portion of its revenue from trading, climbed to the highest level in almost three months after five agencies approved the rule yesterday.

Volcker Rule Gets It (Mostly) Right
The immediate goal of the Volcker rule, which U.S. regulators approved after a troubled four-year gestation, is to end speculative trading by banks. It also has a larger ambition — to tame the culture of excessive risk-taking that had Wall Street in its grip by 2008.
How does the final product measure up to those aims? It will displease bankers because it’s tougher than they expected. It will disappoint many of the banks’ critics, who had hoped for fuller retribution for years of bank-induced economic misery. It finds a middle ground, and it gets the main things about right.


Lower Your Taxes While Boosting Stock Gains
Steven M. Sears – Barron’s
As 2013 draws to an end, many investors are realizing they have neglected important portfolio-management duties.
This is creating difficulties around stocks that investors favor even though the shares have lagged the stock market.

Options Education

When do I close a short option position?
Steve Claussen – CBOE
I think this first piece of advice I received on the floor is truer today than ever.
I received this question during a covered call strategy webinar presented to our customers this week.  Many of our customers employ short option trades, either covered calls or cash secured puts.  They are confident on the risk and rewards of the strategies and the initial trade set up, but where I believe many of them make mistakes is in the closing of the position.

The Highs and Lows of Straddles
Jim Bittman – Investors.com
“After the earnings report, I think this stock will either soar or collapse.”
What good is such a forecast? It can be very good, if you know how to trade straddles.
Straddle Defined
Buying a straddle involves the simultaneous purchase of one call and one put with the same strike price, same expiration date and same underlying stock. Graph 1 illustrates a long, or purchased, 80 Straddle on stock XYZ. This straddle is created by purchasing one XYZ 80 Call for 4.25 and, simultaneously, purchasing one XYZ 80 Put for 4.75 for a total cost of 9.00, or $900, not including commissions. The stock price is assumed to be $79.

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